Finance: Research, Policy and Anecdotes

Brexit - the long view

What a nice quiet week the Easter week was! No action in the House of Commons, only few if any new crazy Brexit proposals. And at least here in London, attention has been drawn to the real
future problems of our planet! Just before the Brexit craziness starts again tomorrow and the campaign for the European
Parliamentary Elections will turn ugly, a few notes on the longer-term perspectives on Brexit.

First, Northern Ireland: the murder of journalist Lyra McKee has shown
yet again the fragility of the peace process in Northern Ireland. While no one would accuse Brexiters of any direct responsibility, the uncertainty on the future of the border in Northern Ireland caused by Brexit plays directly into the hands of extremists!
It is sad to see that 21 years after the Good Friday Agreement peace cannot be taken as granted anymore! And it reminds us what damage nationalism can do in Europe!

Second, the future of banking in London. My colleagues Barbara Casu and
Angela Gallo found in a recent report that London continues to have competitive advantages as financial centre, even as banks
shift some staff and activities to the continent. Different corporate forms are discussed to continue providing financial services into the EU after Brexit, but the bigger picture prediction is certainly that in the near future, London will not lose its status
as global financial centre. This is also consistent with recent research by Sascha Steffen and co-authors that the reduction in syndicated lending after Brexit is mostly due to
reduced lending to domestic firms and by domestic banks.

This brings me to the broader point of the future economic structure of UK after Brexit. I really enjoyed this insightful piece by Martin Sandbu on Brexit
and the Future of UK Capitalism. One of the main messages is that “both in high‐value manufacturing and services, the best performers are successful precisely because their activities pool resources from all of Europe and sell to all of Europe. They
are not good British jobs as much as good European jobs located in Britain.” I think this last sentence really drives home the point how the four freedoms hang together and are hard to disentangle even on the economic level. The harder Brexit,
the more likely are these jobs to disappear. However, a Brexit from the Single Market will hit manufacturing more than services (which are already oriented more toward non-Europe), so that “a hard Brexit will not only ensure the most loss of growth in
aggregate, but stands to exacerbate the polarising characteristics of the UK's existing economic model and harshen the social tensions to which it has given rise.” Scary thoughts!

On a final note, and before we all get drawn
back into the daily Brexit chaos, I really enjoyed this film about the Barnier team – it shows a human side to the negotiating team. And without rubbing it too much
to the British side, it makes clear that the EU team went about the negotiations in a systematic and rational way.

Now, let me get the popcorn and get ready for tomorrow’s first episode of the new season of Brexit – the soap
opera.